Genworth Mortgage Insurance Australia Full Year 2016 Financial Results Presentation 8 February 2017 2017 Genworth Mortgage Insurance Australia Limited. All rights reserved.
Disclaimer This presentation contains general information in summary form which is current as at 31 December 2016. It may present financial information on both a statutory basis (prepared in accordance with Australian accounting standards which comply with International Financial Reporting Standards (IFRS) and non-ifrs basis. This presentation is not a recommendation or advice in relation to Genworth or any product or service offered by Genworth s subsidiaries. It is not intended to be relied upon as advice to investors or potential investors, and does not contain all information relevant or necessary for an investment decision. It should be read in conjunction with Genworth s other periodic and continuous disclosure announcements filed with the Australian Securities Exchange (ASX), and in particular the Full Year Financial Report for the year ended 31 December 2016. These are also available at www.genworth.com.au. No representation or warranty, express or implied, is made as to the accuracy, adequacy or reliability of any statements, estimates or opinions or other information contained in this presentation. To the maximum extent permitted by law, Genworth, its subsidiaries and their respective directors, officers, employees and agents disclaim all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient through use of or reliance on anything contained in or omitted from this presentation. No recommendation is made as to how investors should make an investment decision. Investors must rely on their own examination of Genworth, including the merits and risks involved. Investors should consult with their own professional advisors in connection with any acquisition of securities. The information in this report is for general information only. To the extent that certain statements contained in this report may constitute forward-looking statements or statements about future matters, the information reflects Genworth s intent, belief or expectations at the date of this report. Genworth gives no undertaking to update this information over time (subject to legal or regulatory requirements). Any forward-looking statements, including projections, guidance on future revenues, earnings and estimates, are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Genworth s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Any forward-looking statements, opinions and estimates in this report are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Neither Genworth, nor any other person, gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this report will actually occur. In addition, please note that past performance is no guarantee or indication of future performance. This presentation does not constitute an offer to issue or sell securities or other financial products in any jurisdiction. The distribution of this report outside Australia may be restricted by law. Any recipient of this presentation outside Australia must seek advice on and observe any such restrictions. This presentation may not be reproduced or published, in whole or in part, for any purpose without the prior written permission of Genworth. Local currencies have been used where possible. Prevailing current exchange rates have been used to convert foreign currency amounts into Australian dollars, where appropriate. All references starting with FY refer to the financial year ended 31 December. For example, FY16 refers to the year ended 31 December 2016. All references starting with 1H refers to the half year ended 30 June. All references starting with 2H refers to the half year ended 31 December. For example, 2H16 refers to the half year ended 31 December 2016. Genworth Mortgage Insurance Australia Limited ABN 72 154 890 730 Genworth, Genworth Financial and the Genworth logo are registered service marks of Genworth Financial, Inc and used pursuant to license. 2
Introduction Georgette Nicholas, CEO
FY16 financial results summary (A$ millions) FY15 FY16 Change % Gross written premium 507.6 381.9 (24.8%) Net earned premium 469.9 452.9 (3.6%) Reported net profit after tax 228.0 203.1 (10.9%) FY16 result in line with expectations GWP lower on reduced HLVR segment and customer changes. Sequential improvement in average flow price reflects product mix and recent premium rate increases. Reported NPAT includes after-tax mark-to-market loss of $9.1 million on the investment portfolio. Underlying net profit after tax 264.7 212.2 (19.8%) Ordinary dividends per share (cps) 26.5 28.0 5.7% Key financial measure FY16 guidance FY16 actual NEP growth Down approx. 5% (3.6%) Full year loss ratio Approx. 35% 35.1% Dividend payout ratio 50%-80% 67.2% Loss development from mining regions; focus on risk management Increased delinquency development and claims experience from mining regions in Qld and WA. NSW and Victoria performing strongly. Customer contract renewals Renewed agreement with CBA for a further 3 years. Multi-year contracts renewed with a number of smaller customers during the year. 4
Residential mortgage lending market Originations and HLVR penetration 1 $ bn 37% 34% 33% 31% 31% 27% 27% 219 41 40 74 262 240 242 256 46 26 31 36 43 47 50 43 102 99 98 111 300 40 41 139 335 40 49 166 24% 371 37 51 200 22% 275 23 38 146 Note: 2016 data for first 9mths only 65 71 68 63 66 80 80 83 68 2008 2009 2010 2011 2012 2013 2014 2015 2016 Loans approved LVR<60% HLVR Penetration Loans approved LVR 60%-80% Loans approved LVR 80%-90% Loans approved LVR>90% HLVR loans (% of New residential loan approvals) Note: Totals may not sum due to rounding. Total new residential loans approved in the 9 months to 30 September 2016 was $275.0 billion, up 0.5% on the previous corresponding period. 1. Prior periods have been restated in line with market updates. 2. 2016 data is for 9 months to 30 September only. Sources: APRA Quarterly ADI property exposures statistics (ADI s new housing loan approvals), September 2016. 2 5
Macroeconomic conditions Delinquency rates by geography Unemployment rates (seasonally adjusted) State Dec 15 Dec 16 Change (basis points) State Dec 15 Dec 16 Change (basis points) New South Wales 0.27% 0.30% 3 bps Victoria 0.33% 0.38% 5 bps Queensland 0.53% 0.66% 13 bps Western Australia 0.46% 0.74% 28 bps South Australia 0.51% 0.61% 10 bps Group 0.38% 0.46% 8 bps New South Wales 5.1% 5.2% 10 bps Victoria 5.9% 6.0% 10 bps Queensland 5.9% 6.2% 30 bps Western Australia 6.2% 6.6% 40 bps South Australia 7.2% 6.8% (40 bps) National 5.7% 5.8% 10 bps Source: Australian Bureau of Statistics Interest rates House prices Capital city dwellings ($000) 8% 7% Cash Rate Standard Variable Mortgage Rate 1100 1000 NSW VIC QLD WA SA Australia 6% 900 5% 4% 3% 2% 800 700 600 1% 500 0% Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Source: Reserve Bank of Australia 6 400 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Source: CoreLogic
Genworth value proposition Innovation and technology will underpin Genworth s value proposition Market & regulatory changes Changing credit cycle New and refined bank capital requirements Tighter liquidity measures Increased threat of competition Cost pressures BUSINESS ENVIRONMENT Genworth value proposition Customer focused Risk management partner Mortgage market insights Regulatory advocacy Technology driven, lean and agile Genworth remains focused on the strategic needs of its customers and on delivering a sustainable return on equity for its shareholders. 7
Genworth s Strategic Objectives A refined strategic plan to re-ignite profitable growth over the medium term Mission: We support Australians in realising their dream of home ownership through the provision of capital and risk management solutions to mortgage lenders Vision: To be the leading provider of customer-focused capital and risk management solutions in residential mortgage markets Immediate and Ongoing Initiatives (2017-2018) Longer Term Initiatives (2019+) 1. Redefine Core Business Model 2. Leverage Data and Technology to Add Value Across the Mortgage Value Chain Cost Efficiency Product Innovation Underwriting Efficiency Loss Management Solutions Product Enhancement Leverage HLVR Experience and Expertise Leverage Data and Partnerships Regulator and Policy Maker Advocacy Strategic Enablers People, Organisation and Cultural Change Data and Analytics Technology Stakeholder Management 8
Detailed financial performance Luke Oxenham, CFO
FY 2016 income statement (A$ millions) 1H15 2H15 FY15 1H16 2H16 FY16 Change FY15 v FY16 Gross written premium 285.4 222.2 507.6 189.8 192.1 381.9 (24.8%) Movement in unearned premium (19.7) 61.7 42.0 76.0 66.8 142.8 240.0% Gross earned premium 265.7 283.9 549.6 265.8 258.9 524.7 (4.5%) Outwards reinsurance expense (40.0) (39.7) (79.7) (36.9) (34.9) (71.8) (9.9%) Net earned premium 225.7 244.2 469.9 228.8 224.0 452.9 (3.6%) Net claims incurred (49.9) (62.8) (112.7) (75.4) (83.4) (158.8) 40.9% Acquisition costs (25.8) (28.7) (54.5) (25.3) (27.2) (52.5) (3.7%) Other underwriting expenses (34.4) (34.1) (68.5) (30.5) (33.6) (64.0) (6.6%) Underwriting result 115.6 118.6 234.2 97.6 79.8 177.6 (24.2%) Investment income on technical funds 1 13.5 25.5 39.0 47.6 (7.2) 40.4 3.6% Insurance profit 129.1 144.1 273.2 145.2 72.6 218.0 (20.2%) Investment income on shareholder funds 1 37.6 31.3 68.9 56.2 29.3 85.6 24.2% Financing costs (5.5) (11.0) (16.5) (8.2) (6.0) (14.2) (13.9%) Profit before income tax 161.2 164.4 325.6 193.3 96.1 289.3 (11.1%) Income tax expense (48.2) (49.4) (97.6) (57.5) (28.8) (86.2) (11.7%) Net profit after tax 113.0 115.0 228.0 135.8 67.3 203.1 (10.9%) Underlying net profit after tax 132.9 131.8 264.7 112.9 99.3 212.2 (19.8%) Note: Totals may not sum due to rounding. 1. Investment income on technical funds and shareholder funds include the before-tax effect of realised and unrealised gains/(losses) on the investment portfolio. 10
New insurance written NIW 1 by original LVR 2 band NIW 1 by product type $ bn, % $ bn, % 87% 87% 86% 18.9 17.3 17.7 28% 25% 33% 85% 14.9 21% 83% 84% 14.0 12.6 16% 18% 17.3 18.9 17.7 14.9 14.0 12.6 50% 51% 49% 52% 48% 55% 98.6% 99.1% 99.3% 99.1% 99.2% 99.1% 17% 21% 25% 27% 36% 27% 1H14 2H14 1H15 2H15 1H16 2H16 0-80.00% 80.01-90.00% 90.01% and above Original LVR 1H14 2H14 1H15 2H15 1H16 2H16 Standard Others (incl. HomeBuyer Plus) 1. NIW includes capitalised premium. 2. Original LVR excludes capitalised premium. 11
Gross written premium GWP and average price of flow business GWP walk $ m, % $ m 2.0% 1.82% 1.79% 1.78% 507.6 3.4 (83.2) 1.5% 313.6 320.6 285.4 1.55% 1.45% 1.56% (45.8) 381.9 1.0% 222.2 189.8 192.1 0.5% 0.0% 1H14 2H14 1H15 2H15 1H16 2H16 GWP (including bulk) Avg premium <80% (Flow only) 1 Average premium (Flow only) Avg premium >80% (Flow only) 1 FY15 Product mix Volume LVR mix FY16 1. Historical NIW has been adjusted in the average premium calculation to reflect a risk sharing arrangement. 12
Net incurred claims (A$ millions unless otherwise stated) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Number of paid claims (#) 280 288 325 291 280 286 321 312 Average paid claim 1 ($ 000) 62.5 66.9 65.9 71.0 65.8 79.2 73.3 65.0 Claims paid 1 17.5 19.3 21.4 20.6 18.4 22.7 23.5 21.3 Movement in borrower recovery receivable on paid claims (9.6) 0.7 0.5 (3.4) 0.1 - - (1.0) Movement in reserves 10.5 11.5 19.6 4.1 12.2 22.0 28.9 10.6 Net claims incurred 18.4 31.5 41.5 21.3 30.7 44.7 52.5 30.9 Reported loss ratio (%) 16.6% 27.4% 33.5% 17.8% 27.0% 38.8% 45.3% 28.6% Borrower recovery receivable establishment 9.6 - - - - - - - Incurred but not reported (IBNR) adjustment - - (12.2) (5.4) - - - - Normalised net claims incurred 28.0 31.5 29.3 16.0 30.7 44.7 52.5 30.9 Net earned premium 110.8 114.9 123.9 120.3 113.5 115.3 115.9 108.1 Net earned premium earnings curve adjustment - - (11.2) - - - - - Adjusted net earned premium 110.8 114.9 112.7 120.3 113.5 115.3 115.9 108.1 Normalised loss ratio (%) 25.3% 27.4% 26.0% 13.3% 27.0% 38.8% 45.3% 28.6% Note: Totals may not sum due to rounding. 1. Movement in borrower recovery receivable on paid claims is excluded from average paid claim calculation and claims paid. 13
FY 2016 regulatory capital position (A$ in millions) 31 Dec 15 31 Dec 16 NIW by original LVR band and Probable Maximum Loss Capital Base $ bn Common Equity Tier 1 Capital 2,351.2 2,012.8 Tier 2 Capital 249.6 200.0 Regulatory Capital Base 2,600.8 2,212.8 2.60 2.59 2.51 Capital Requirement Probable Maximum Loss (PML) 2,509.7 2,284.6 Net premiums liability deduction (290.0) (288.8) Allowable reinsurance (875.5) (900.5) LMI Concentration Risk Charge (LMICRC) 1,344.2 1,095.3 2.36 2.36 33.8 30.8 29% 39% 35.4 36% 36.2 30% 32.6 23% 2.28 26.6 17% Asset risk charge 76.9 111.0 Asset concentration risk charge - - 41% 45% 45% 51% 51% 51% Insurance risk charge 226.6 229.8 Operational risk charge 27.7 30.0 Aggregation benefit (37.1) (52.2) Prescribed Capital Amount (PCA) 1,638.3 1,413.9 PCA Coverage ratio (times) 1.59 x 1.57 x 30% 16% 19% 19% 26% 31% 2011 2012 2013 2014 2015 2016 0-80.00% 80.01-90.00% 90.01% and above Probable Maximum Loss Note: Totals may not sum due to rounding. 14
APRA Losses ($m) APRA Losses ($m) Reinsurance program Reinsurance Program 31 Dec 2016 - $900m cover $ m 3,000 Reinsurance Program 1 January 2017 - $950m cover $ m 3,000 2,500 2,000 100 100 200 200 Provider 1 Consortium 5 Consortium 4 Consortium 3 2,500 2,000 100 100 100 200 200 Consortium 6 Provider 1 Consortium 5 Consortium 4 Consortium 3 1,500 200 100 Consortium 2 Consortium 1 1,500 200 50 Consortium 2 Consortium 1 1,000 1,000 500 500 0 31-Dec-16 0 01-Jan-17 Note: Consortium 1 is $100m coverage at 50% share 15
Composition of Underlying ROE changes Underlying ROE Walk from FY15 to FY16 % (0.5) (1.4) (0.7) 1.4 1.2 11.6 9.0 10.4 10.4 11.6 FY15 Change in NEP Change in Losses Investment Income Change in Equity Base / Other FY16 Excess Capital FY16 @ 144% Capital Ratio 16
cents per share Ordinary payout ratio Ongoing program of capital management Recent actions Genworth dividends Since listing, Genworth has paid out all aftertax profits by way of ordinary and special dividends to shareholders. $202 million or 34 cents per share capital reduction on 1 June 2016. 40.5 cents per share of ordinary and special dividends declared with respect of 2016 earnings. Reinsurance program of $950 million as at 1 January 2017. Program was restructured on more favourable terms. 20 16 12 8 4 0 75% 70% 65% 60% 55% 50% 1H14 2H14 1H15 2H15 1H16 2H16 Ordinary Special Ordinary payout ratio (RHS) Future actions being considered The Company continues to actively manage its capital position and is continually evaluating its excess capital and potential uses. 17
Summary and conclusion Georgette Nicholas, CEO
2017 outlook Australian economic conditions have moderated recently as the economy continues to transition away from the mining investment boom. The unemployment rate has moved up slightly to 5.8 per cent, but key labour market indicators remain mixed. Under-employment remains near-record highs, implying a greater degree of spare capacity in the economy than indicated by the unemployment rate alone. These dynamics are increasing mortgage stress in certain regional economies and Genworth expects elevated delinquencies in these regions in 2017. House price growth is likely to moderate in 2017, with Sydney and Melbourne continuing to outperform the other major cities. There may be a wider variance in price movements of single dwellings compared to high density properties, particularly in east coast capital cities. The Company continues to actively manage its capital position and is continually evaluating its excess capital and potential uses. Key financial measures - FY17 Guidance Net earned premium growth Full year loss ratio Ordinary dividend payout ratio Down 10 to 15 per cent 40 to 50 per cent 50 to 80 per cent Full year outlook is subject to market conditions and unforeseen circumstances or economic events. 19
Questions Georgette Nicholas, CEO Luke Oxenham, CFO
Supplementary slides
Residential mortgage lending market Investment vs. owner-occupied (APRA statistics) 1 Investment vs. owner-occupied 3 (Genworth) $ bn, % 31% 29% 34% 32% 33% 36% 40% 37% 34% $ bn, % 30% 23% 24% 27% 25% 68 151 76 187 136 109 81 78 84 159 164 172 191 200 136 235 93 182 12.5 29.2 8.7 33.0 21% 23% 20% 20% 6.2 5.2 20.9 21.2 6.7 8.0 8.6 26.5 26.4 26.4 8.4 6.4 22.1 19.1 2008 2009 2010 2011 2012 2013 2014 2015 2016 Owner-occupied Investment Investment as a % of total Investment property lending represented 34% of originations for the period ended 30 September 2016. 2 2008 2009 2010 2011 2012 2013 2014 2015 2016 Owner-occupied Investment Investment as a % of total Investment property lending represented 25% of Genworth s portfolio for the period ended 31 December 2016. 1. Prior periods have been restated in line with market updates. 2. 2016 data is for 9 months to September 2016 only. Sources: APRA Quarterly ADI property exposures statistics (ADIs new housing loan approvals), September 2016. Statistics only show ADIs mortgage portfolios above $1 billion, thereby excluding small lenders and non-banks. 3. Flow NIW only. Owner occupied includes loans for owner occupied and other types. 22
Insurance in force and New insurance written Insurance in force (IIF) 1 by original LVR 2 band, as at 31 December 2016 IIF 1 by product type, as at 31 December 2016 Total IIF $324 bn 95.01%+ 2% <60% 8% 60.01-70% 6% Low Doc 5% HomeBuyer Plus 3% Other 1% 90.01-95% 28% 70.01-80% 17% 85.01-90% 31% 80.01-85% 8% Standard 91% Flow NIW 1 by loan type IIF 1 by loan type, as at 31 December 2016 73% 75% Investment 26% 27% 25% Owner-occupied 74% Owner-occupied Investment 1. NIW and IIF includes capitalised premium. 2. Original LVR excludes capitalised premium. 23 FY-2015 FY-2016
Insurance ratio analysis Expenses Combined ratio 26.6% $ m, % 26.3% 26.7% 27.1% 25.7% $ m, % 24.4% 58.1 59.8 60.2 62.8 60.8 55.8 34.0 34.9 34.4 34.1 33.6 30.5 46.2% 44.7% 101.0 101.5 58.2 59.8 48.8% 51.4% 125.6 110.1 62.8 60.2 57.3% 131.2 55.8 64.3% 144.2 60.8 24.1 24.9 25.8 28.7 25.3 27.2 42.8 41.7 49.9 62.8 75.4 83.4 1H14 2H14 1H15 2H15 1H16 2H16 Acq. costs Und. expense Exp. ratio The expense ratio is calculated by dividing the sum of the acquisition costs and the other underwriting expenses by the net earned premium. Insurance margin 1H14 2H14 1H15 2H15 1H16 2H16 Net claims incurred Expenses Combined ratio The combined ratio is the sum of the loss ratio and the expense ratio. Trailing 12-month underlying ROE % % 66.2% 65.4% 63.5% 57.2% 59.0% 32.4% 12.0% 12.2% 12.0% 11.6% 11.3% 10.4% 24 1H14 2H14 1H15 2H15 1H16 2H16 The insurance margin is calculated by dividing the profit from underwriting and interest income on technical funds (including realised and unrealised gains or losses) by the net earned premium. 1H14 2H14 1H15 2H15 1H16 2H16 The trailing twelve months underlying ROE is calculated by dividing underlying NPAT of the past 12 months by the average of the opening and closing underlying equity balance for the past 12 months.
2016 full year performance metrics Key financial measures FY15 FY16 Change FY16 vs FY15 NIW ($ billions) $32.6bn $26.6bn (18.4%) Average price - Flow NIW 1.63% 1.51% (0.12%) Gross written premium ($ millions) $507.6 m $381.9m (24.8%) Net earned premium ($ millions) $469.9 m $452.9m (3.6%) Loss ratio 24.0% 35.1% 11.1% Underlying NPAT ($ millions) $264.7m $212.2m (19.8%) Underlying ROE (trailing 12 months) 11.6% 10.4% (1.2%) Total ordinary dividends (cents per share) 26.5 28.0 5.7% Ordinary dividend payout ratio 62.2% 67.2% 5.0% Total special dividends (cents per share) 23.8 12.5 (47.5%) Strong, stable balance sheet with $1.2bn of Unearned Premium Reserve (UPR) Cash and fixed interest Investment portfolio of $3.5bn with 2.5 year duration Regulatory capital solvency ratio 157% on a Level 2 basis, above the Board s targeted range 25
Half yearly financial information Financial ratios Key financial measures 1H15 2H15 1H16 2H16 Loss ratio 22.1% 25.7% 33.0% 37.2% Expense ratio 26.7% 25.7% 24.4% 27.1% Combined Ratio 48.8% 51.4% 57.3% 64.3% Insurance Margin 57.2% 59.0% 63.5% 32.4% Effective Tax Rate 29.9% 30.0% 29.7% 30.0% ROE 11.9% 9.7% 11.2% 9.7% Underlying ROE 12.0% 11.6% 11.3% 10.4% Note: ROE is presented on a trailing 12-month basis 26
Delinquency development Quarterly delinquency roll and delinquency composition Delinquency roll 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Opening balance 4,953 5,378 5,900 5,804 5,552 5,889 6,413 6,844 New delinquencies 2,679 3,103 2,782 2,401 2,697 3,215 3,214 2,786 Cures (1,974) (2,293) (2,553) (2,362) (2,080) (2,405) (2,462) (2,587) Paid claims (280) (288) (325) (291) (280) (286) (321) (312) Closing delinquencies 5,378 5,900 5,804 5,552 5,889 6,413 6,844 6,731 Delinquency rate 0.36% 0.40% 0.39% 0.38% 0.40% 0.43% 0.47% 0.46% Average reserve per delinquency ($ 000) 45.0 43.1 47.4 49.9 49.2 48.8 50.2 52.8 Delinquencies by book year Dec 15 Dec 16 2007 and prior 2,074 2,052 0.30% 2008 821 876 1.03% 2009 803 882 0.87% 2010 378 430 0.56% 2011 359 470 0.68% 2012 490 710 0.80% 2013 389 563 0.61% 2014 219 528 0.51% 2015 19 199 0.23% 2016-21 0.03% TOTAL 5,552 6,731 0.46% Delinquencies by geography Dec 15 Dec 16 New South Wales 1,047 1,106 0.30% Victoria 1,200 1,378 0.38% Queensland 1,705 2,102 0.66% Western Australia 751 1,203 0.74% South Australia 532 623 0.61% Australian Capital Territory 58 59 0.17% Tasmania 160 175 0.35% Northern Territory 27 56 0.36% New Zealand 72 29 0.07% 5,552 6,731 0.46% 27
1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91 97 103 109 115 121 127 133 139 145 151 157 163 Delinquency rate (%) Delinquency development Favourable performance post 2009 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.40% 0.47% 0.57% 0.46% 0.32% 0.45% 0.48% 0.31% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.20% 0.00% 0.19% 0.02% 0.18% 0.13% 0.07% Performance month The 2008 Book Year was affected by the economic downturn experienced across Australia and heightened stress experienced among self-employed borrowers, particularly in Queensland, which was exacerbated by the floods in 2011. Post-GFC book years seasoning at lower levels as a result of credit tightening, however accelerated increases for 2012-14 books have been predominantly driven by regional parts of QLD and WA which are currently facing challenges as a result of the downturn in the mining sector. 28
Balance sheet and unearned premium reserve Strong balance sheet with $3.5bn in cash and investments and $1.2bn in UPR Balance sheet as at 31 December 2016 Unearned premium by year as at 31 Dec 2016 (A$ in millions) 31 Dec 15 31 Dec16 Assets Cash and cash equivalents 78.1 57.6 Accrued investment income 34.6 28.8 Investments 3,847.8 3,465.0 Total UPR $1.2bn 2009 0% 2011 3% 2010 1% Deferred reinsurance expense 71.0 80.2 Non-reinsurance recoveries 28.8 34.4 Deferred acquisition costs 145.1 142.0 Deferred tax assets 10.6 10.0 Goodwill and Intangibles 10.1 11.1 Other assets 1 5.8 4.4 2016 29% 2012 7% 2013 13% Total assets 4,232.0 3,833.4 Liabilities Payables 2 164.4 130.3 Outstanding claims 277.0 355.5 Unearned premiums 1,320.6 1,177.8 Interest bearing liabilities 244.4 196.0 Employee provisions 6.8 6.4 Total liabilities 2,013.2 1,866.0 Net assets 2,218.7 1,967.4 Note: Totals may not sum due to rounding. 1. Includes trade receivables, prepayments and plant and equipment. 2. Includes reinsurance payables. 2015 26% 2014 21% 29
No. of arrears Delinquency population by months in arrears 7,000 6,000 5,000 4,000 3,000 5,070 18% 16% 22% 5,405 16% 16% 23% 5,300 16% 17% 23% 4,953 17% 18% 23% 5,378 15% 18% 22% 5,900 5,804 14% 14% 16% 17% 24% 25% 5,552 15% 18% 25% 5,889 14% 18% 24% 6,413 13% 18% 24% 6,844 14% 17% 25% 6,731 14% 19% 25% 2,000 1,000 44% 45% 44% 42% 45% 46% 44% 41% 44% 45% 44% 42% 0 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Note: Totals may not sum due to rounding. 3-5 Months 6-9 Months 10+ Months MIP 30
Portfolio evolution Annual NIW by LVR $bn 73.8 26% Annual NIW by Product Type $bn 73.8 28% 17% 44.7 41.6 36% 31.8 33.8 35.4 36.2 30.8 32.6 46% 24% 29% 39% 36% 36% 23% 26.6 20% 17% 57% 41% 35% 41% 45% 45% 45% 51% 51% 44% 19% 35% 30% 16% 19% 19% 26% 31% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0-80.00% 80.01-90.00% 90.01% and above Annual GWP and Average Flow Price 1 72% 44.7 35% 15% 65% 41.6 85% 31.8 30.8 5% 3% Source: Australian Bureau of Statistics 33.8 35.4 36.2 3% 2% 1% 95% 97% 97% 98% 99% 32.6 1% Annual number of New Policies 1, plus policies outstanding 99% 26.6 1% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Standard Others (incl. HomeBuyer Plus) 99% $m 548 459 0.99% 1.09% 562 1.35% 1.33% 367 1.48% 398 1.64% 1.73% 1.80% 1.67% 634 597 545 508 1.51% 382 1,390,016 342,168 1,464,139 194,045 190,570 150,278 124,309 127,775 123,141 122,682 96,356 77,335 2007 NIW 73.8 ($bn) 2008 44.7 2009 41.6 2010 31.8 GWP 2011 30.8 2012 33.8 2013 35.4 2014 36.2 Pricing Source: Reserve Bank of Australia 31 2015 32.6 1. Historical NIW has been adjusted in the average premium calculation to reflect risk sharing arrangement 2016 26.6 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Policy count Policies in-force 1. Annual number of new policies has been restated to show policies written rather than policies in force (includes cancellations) Source: CoreLogic
Insurance in force Insurance portfolio as at 31 December 2016 total $324 billion Insurance in force (IIF) 1 by original LVR 2 band IIF 1 by product type Total IIF $324 bn 95.01%+ 2% <60% 8% 60.01-70% 6% Low Doc 5% HomeBuyer Plus 3% Other 1% 90.01-95% 28% 70.01-80% 17% IIF 1 by book year 85.01-90% 31% 80.01-85% 8% IIF 1 by State Standard 91% 2016 8% 2014 10% 2015 9% 2007 & Prior 33% TAS 2% ACT 3% WA 12% SA 6% NT 1% NZ 2% NSW 28% 1. NIW and IIF includes capitalised premium. 2. Original LVR excludes capitalised premium. 32 2013 8% 2012 7% 2011 6% 2008 6% 2009 2010 7% 6% QLD 23% VIC 23%
Investment portfolio Conservative, well-diversified portfolio with duration to maturity of 2.5 years 1 Investment portfolio by maturity Investment portfolio by rating Investment portfolio by issuer type 2% 5% 3% 2% 5% 5% 13% 26% 16% 44% 23% 40% 23% 10% 31% 30% 0% 22% 0-1 yr 1-3 Yr 3-5 yr 5-10 yr >10 yr Equities Investment portfolio by maturity (as at) 31 Dec 15 31 Dec 16 0-1 Yr 1,181 881 1-3 Yr 938 1,101 3 5 Yr 1,188 817 5-10 Yrs 536 468 > 10 Yrs 83 68 Equities - 188 Total 3,926 3,523 1. Maturity of 2.5 years excludes equities Note: Derivatives has an A grading and 0-1 year maturity 33 AAA AA A BBB or Below Cash Equities Investment portfolio by rating (as at) 31 Dec 15 31 Dec 16 AAA 1,659 1,541 AA 1,355 1,057 A 685 564 BBB or below 149 115 Cash 78 58 Equities - 188 Total 3,926 3,523 Corporate State Gov't Derivatives Cash and cash equiv. C'wealth Equities Investment portfolio by issuer type (as at) 31 Dec 15 31 Dec 16 C wealth 684 824 Corporate 1,692 1,393 C wealth guaranteed _ - State gov t 964 777 Cash equiv. 509 280 Cash 78 58 Equities - 188 Derivatives - 3 Total 3,926 3,523
Claims severity 1 30% 25% 20% 19% 21% 26% 23% 23% 25% 25% 23% 22% 18% 15% 10% 10% 5% 0% 0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1. Claim severity refers to the size of net claims paid as a proportion of the original residential mortgage loan amount.the above figure excludes Inward Reinsurance, New Zealand, Genworth Financial Mortgage Indemnity and portfolio. Book years between 2011 and 2014 are early in their development and are expected to continue to season, which may lead to an increase in claims severity for these Book Years 34
Claims frequency by Book Year (%) as at 31 December 2016 1.8% 1.6% 1.63% 1.4% 1.2% 1.0% 0.8% 1.18% 0.96% 1.21% 1.05% 0.6% 0.4% 0.2% 0.0% 0.41% 0.33% 0.01% 0.14% 0.24% 0.05% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Note: Excludes Inward Reinsurance, New Zealand, Genworth Financial Mortgage Indemnity and portfolio 35
Net claims incurred development Ever to Date Loss Ratio by Book Year (%) as at 31 December 2016 80% 70% 60% 67% 50% 53% 40% 30% 20% 10% 10% 16% 17% 20% 35% 0% 5% 0% 2% 0 1 2 3 4 5 6 7 8 9 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 36
Effective LVR As at 31 Dec 16 As at 31 Dec 15 Insurance in force LVR Change in house price Book year $ billion % Original Effective % 2007& prior 70.7 24% 76.6% 33.4% 96% 2008 16.9 6% 81.7% 55.8% 40% 2009 19.0 7% 84.6% 56.9% 36% 2010 15.0 5% 80.9% 61.2% 24% 2011 16.1 6% 83.5% 63.1% 27% 2012 22.8 8% 86.3% 64.8% 30% 2013 26.1 9% 87.2% 68.9% 25% 2014 29.6 10% 87.2% 75.5% 15% 2015 28.4 10% 85.7% 79.7% 7% 2016 25.2 9% 83.6% 82.9% 2% Total Flow 269.8 93% 81.9% 55.6% 49% Portfolio 21.8 7% 55.2% 23.6% 97% Insurance in force LVR Change in house Book year $ billion % Original Effective price % 2007 & prior 74.5 26% 76.8% 36.7% 87% 2008 18.2 6% 82.2% 59.8% 33% 2009 20.9 7% 84.9% 61.2% 30% 2010 16.5 6% 81.5% 65.8% 18% 2011 17.9 6% 83.9% 67.5% 21% 2012 25.3 9% 86.3% 68.6% 24% 2013 29.3 10% 87.1% 72.5% 19% 2014 32.4 11% 87.0% 79.5% 10% 2015 30.0 10% 85.8% 83.9% 3% Total Flow 265.0 92% 82.0% 57.6% 45% Portfolio 22.0 8% 54.9% 25.1% 87% Total/ Weighted Avg. 291.6 100% 79.4% 52.6% 54% Total/ Weighted Avg. 287.0 100% 79.4% 54.5% 49% Note: Excludes Inward Reinsurance, NZ and Genworth Financial Mortgage Indemnity, as Genworth Australia does not have comparative available data for these businesses. Genworth Australia calculates an estimated house price adjusted effective LVR, using the CoreLogic Home Price Index that provides detail of house price movements across different geographic regions and assumes 30 year principal and interest amortising loan, with the mortgage rate remaining unchanged through the period. Effective LVR is not adjusted for prepayments, redraws or non-amortising residential mortgage loans insured. 37
Income statement reconciliation Reconciling to the US GAAP figures reported by Genworth Financial, Inc. Walk from US GAAP AUS segment results to AIFRS Genworth Consolidated Income Statement for year ended 31 Dec 2016 Quarterly supplement Less non - controlling interest Quarterly supplement AUD equivalent quarterly supplement Adjustments (a) (b) (c) (d) (e) Total adjustments Genworth group Premiums Interest Income Realised investment gains/losses Unrealised gains/losses Other income Total revenue Net claims incurred Other underwriting expenses Amortization of Intangibles Acquisition costs (DAC amortisation) Interest expenses/ financing related costs Total expenses Total pre-tax income Total tax expense Net income Less: net income attributable to noncontrolling interests Net income available to Genworth common stockholders U$M U$M U$M A$M A$M A$M A$M A$M A$M A$M A$M 337 337 453 0 453 94 94 126 2 2 128 9 9 12 (1) (1) 11-0 - (13) (13) (13) 0 0 0 0 0 440 0 440 591 2 0 (14) 0 0 (12) 579 113 113 152 7 7 159 96 96 129 (17) (47) (1) (65) 64 0 0 1 0 1 14 14 18 35 35 53 10 10 14 (0) 0 0 14 233 0 233 314 (17) (12) 0 7 (1) (23) 291 207 0 207 278 19 12 (14) (7) 1 11 289 67 67 90 (1) 4 (4) (2) 0 (4) 86 140 0 140 188 20 8 (10) (5) 1 15 203 75 (75) 0 0 0 0 65 75 140 188 20 8 (10) (5) 1 15 203 Note: Totals may not sum due to rounding. a) Investment Income and FX measurement adjustment for U.S. entities outside Genworth Group but included as part of USGAAP Aus Segment results, Corporate Overhead allocation and U.S. shareholder tax impact. b) Differing treatment of DAC, with AIFRS seeing a higher level of deferral and amortisation. c) Under AIFRS unrealised gains/(losses) on investments are recognised in the income statement. d) AIFRS requires reserves to be held with a risk margin and an adjustment to the level of reserves for the non-reinsurance recoveries. e) Additional local share based payments and other miscellaneous expense differences. 38